Last week was extremely important for investors in the currency market. Major central banks held monetary policy meetings and provided guidance for upcoming changes in their policy. All banks had very similar positions and indicated a potential easing of monetary conditions, which should potentially counterbalance a slowdown in economic growth. These comments increased risk appetite in the market and pushed investors to buy riskier assets and currencies, thus the major safe haven U.S. dollar slipped to a 3-month low.
Members of the Federal Reserve kept the interest rate unchanged, however, changed the wording of a press release, eliminating words related with patience about further economic tendencies. Investors consider these changes as the initial steps and preparation before the cut of interest rates in July's meeting, which markets assign an 80% probability.
Economic data in the U.S. remained mixed. Preliminary manufacturing PMI continued its slide and decreased from 50.5 to 50.1 points, which is the major level between expansion and contraction. Latter data indicates, that businesses remain rather pessimistic about upcoming months and see limited opportunities to grow their operations. Importantly, the U.S. was the major source of growth among developed countries and deteriorating sentiment in the U.S. threatens all global economy to experience a systematic slowdown. Initial jobless claims were 216 thousand and remained stable compared to the last week data.
The main currency pair EUR/USD appreciated in value and reflected higher risk appetite among investors, primarily after the Federal Reserve meeting. However, economic data in Europe remained rather pessimistic and did not show improvement in sentiment. Preliminary PMI in Europe was 47.8 and in Germany 45.5 points, both remaining in negative territory. Annual inflation in Europe was 1.2%. ZEW index dropped to -20.2 points, returning to a low of 2019, which the last time was reached only in 2012. Important to mention, that the European Central Bank also held a monetary policy meeting last week. Members did not change the interest rate, however, mentioned that it can be decreased even further and quantitative easing activated again to stimulate the economy. The yield of German bunds remains negative at historical lows around -0.28%. EUR/USD has ended trading week appreciating 1.4%.
Most important Asian pair USD/JPY depreciated after the Federal Reserve meeting down to the lowest level since April 2018. The Bank of Japan did not change monetary policy, what pushed investors to buy yen and sell the U.S. dollar, as Americans are likely to hold relatively easier monetary policy in upcoming months. Among economic data, the major piece was Japan's annual exports, which dropped -7.8% compared to the same month last year. This was already the 6th consecutive decrease, which provides a gloomy perspective on the global economy. Annual inflation in Japan was 0.7% and shows a marginal increase over the last 6 months. USD/JPY has ended the week depreciating -1.1%.
Great Britain's Pound appreciated against the U.S. dollar, but the increase was relatively small compared with other currencies of developed economies. Uncertainty in the market remained, as investors were looking for clues which candidate could possibly become a new Prime Minister. Inflation was 2.0% and retail sales increased by 2.3% per year. The central bank did not change interest and members unitedly voted for stable rates. GBP/USD has ended the trading week increasing 1.2%.
This week will start rather calmly and only German Ifo index data will be announced. On Tuesday, investors will be focused on the U.S. consumer confidence index, which showed strength in recent months despite an overall gloomy situation. On Wednesday, U.S. durable good orders will be released. On Thursday, no important news is planned and, on Friday, market participants will follow economic growth in the U.K. and price changes in the U.S.
According to Admiral Markets market sentiment data, EUR/USD long-positions are held by 18% of investors (dropped -54 percentage points, compared to last week's data). In the main Asian pair USD/JPY 81% of investors held long positions (+17 percentage points). In GBP/USD pair 55% of participants are expecting growth (-30 percentage points). This kind of data can be interpreted as an opposite indicator, therefore appreciation is likely in EUR/USD and depreciation is likely in GBP/USD and USD/JPY pairs. Analysis of positioning data should always be accompanied by fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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